Paradise Papers: the issue on beneficial ownership

(CityWire) -- WikiLeaks in 2010, the Luxembourg tax files in 2014 and the Panama Papers in 2016. Now, we have the Paradise Papers raising the same question to the fore: how dark and murky is the world of offshore investment?

The investigation which looked into 13.4 million leaked documents revealing how the world’s super rich have been using offshore structures, also raised questions about the lack of transparency around beneficial ownership.

In other words, identifying the individual who is ultimately entitled to benefits from the ownership of securities or has controlling voting rights in a company.

Singapore was at the centre of the storm because of leaked data from Appleby and Asiaciti Trust. The Monetary Authority of Singapore said it will review the information and take action against any financial institution that has breached regulations.

‘Governments are interested in these leaks,’ said Ryan Lee, Asia Pacific regional manager for business solution group at Accuity. ‘Their role is to ensure fair taxation of citizens and any attempt to reduce tax liabilities illegally would be considered criminal.’

Lee said for jurisdictions in Singapore and Hong Kong to retain their status as the key financial hub in the world, they would have to ensure the highest standards of disclosure among its high-net-worth individuals, government officials as well as their family members.

‘There is also a concept of de facto beneficial ownership where securities held by a person’s spouse and [or] minor children being counted as securities held by that person. As such, disclosure would be further scrutinized,’ he added.

In fact, following the Panama Papers and 1Malaysia Development Berhad scandals of 2016, MAS has also been tightening the rules around tax transparency and identifying the ultimate beneficial owners of trusts and corporations.

In March, it made amendments aimed at express trusts to its Trustees Bill, including the maintenance of records of the owners.

It also changed its Companies Act to better identify and combat tax evasion. The regulator now requires limited liability partnerships incorporated and registered in Singapore as well as branches of foreign companies to maintain registers of beneficial owners.

Hong Kong is proposing the introduction of a beneficial ownership register. If enacted, companies will need to put a register in place by 1 March 2018. Both countries already require substantial shareholding of 5% and above in any company to be disclosed.

‘This information on ultimate beneficial ownership will be very crucial and will play as an additional data point in the due diligence exercise [when on boarding customers at private banks],’ said Bharath Vellore, product innovation manager at Accuity.

‘So not only high risk clients, but beneficial owners as well will be recorded on the system for any future financial transactions.’

Public or private?

When it comes to ultimate beneficial ownership, closely linked to the issues of tax evasion are money laundering concerns.

On 26 June, a legislation making the beneficial ownership register public came into force in the UK on the back of the European Commission’s Fourth Money Laundering Directive.

Called the PSC Register (People with Significant Control), it has publicly available information as well as certain information that is only available to credit institutions or financial institutions where required to comply with their anti-money laundering due diligence obligations.

According to Vellore, Singapore’s wealthy can probably rest easy on this front, though disclosure and tax transparency will become more stringent in 2018.

‘There's no public register talk yet in Singapore. My personal view is that is not going to happen in Singapore because as a private banking hub, there is a lot of sensitivity around what information on wealth can be made public and what can't,’ he said.

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